Required Lump Sum Deposit
Anyone wise enough to save money has savings goals. This calculator will tell you how much you need to invest now to meet a specific goal.
First enter your savings goal, the annual interest rate you expect to earn, and the number of years between now and your savings goal. Press CALCULATE and you’ll see the lump-sum investment you will need to make to meet your goal.
How Much Do You Need to Save to Reach a Future Savings Goal?
Building a nest egg is a key part of your plan for the future. No matter the intended usage, the entire point of your starting to save a small amount of money now is to have a great deal of money later. Here is what you need to know to determine how much you must save to reach that future goal.
Savings and Interest
If you want to have $25,000 to purchase a car in five years, you probably believe that you need to save $5,000 a year. In order to reach this target, your weekly savings amount needs to be approximately $100 ($96.16 to be precise). If you possess enough discipline to add that money to a savings account each month, you will reach your goal. This is not the best way to earn money, though.
Are you familiar with the concept of interest? It is the additional payment made by a borrower in order to entice a lender into providing them with money. You are probably familiar with the premise with regard to your car loan, mortgage payment, or credit card.
You may not realize this, but when you deposit your money into a savings account, you become the lender. The bank is paying you interest in exchange for your agreeing to let them use your money for their own purposes. How does this help you? Even at a modest interest rate of 1 percent, you earn one dollar annually for every hundred dollars you save.
The Math of Interest
Presuming that you are on schedule with your planned savings, the $5,000 you deposited in year one is worth $5,050 at the end of year two. Even better, the $50 you earned via interest in year two is now subject to its own interest. In a nutshell, this is the definition of compound interest. Your interest begins to earn its own interest. How does this help?
The earlier example included a terrible interest rate. Most people can garner 5% interest on a consistent basis. Presuming 5 percent interest, the math changes dramatically in your savings. Your $100 initial investment in combination with weekly additions of $100 will eventually return to you approximately $27,000 after five years rather than the expected $25,000.
Present and Future Value
Simply by anticipating savings and interest, you can either pay less each week now or receive a larger than anticipated amount later. In economic terms, these are the concepts of present and future value. Present value is the current amount of money you have. Future value is what your money will be worth at a designated point of time in the future once composite interest is included.
In the example above, the present value of your money is $100, the initial investment. After one year, it is $5,000. After five years, it is $27,000. All that occurs in between is your continued weekly investments of $100. Interest does all the work from that point forward.
Building a nest egg requires discipline and patience. As long as you possess both traits and arm yourself with a working understanding of how interest works, you can easily meet your goals.